Mr MATT KEAN ( Hornsby—Minister for Innovation and Better Regulation) (18:57): I move:
That this bill be now read a second time.
The Government is pleased to introduce the Property, Stock and Business Agents Amendment (Property Industry Reform) Bill 2017. This bill is the first step in the introduction of the New South Wales Government's major reform package for the real estate and property industry. The reform package will put consumers first by improving educational and professional standards across the industry, improving accountability and transparency, streamlining the licensing framework and strengthening Fair Trading's compliance and enforcement powers. Property services agents are entrusted to manage valuable rental properties and strata schemes. Property agents act on behalf of consumers in the biggest and most important transactions of most people's lives—the sale or purchase of a property. Almost every citizen of New South Wales will, at some point, have dealings with a property industry agent. The real estate and property sector is also an integral part of the New South Wales economy, with more than $11 billion in stamp duty collected in the last financial year.
Although many real estate and property industry agents undertake their responsibilities to a high standard, the industry itself continues to express concerns that educational and qualification requirements are inadequate. With this in mind, in the last financial year the Property Services Compensation Fund paid out more than $500,000 to consumers due to agents' failure to account for their clients' funds. In previous financial years the amounts paid out of the Compensation Fund have exceeded two or even three million dollars. I am sorry to report that NSW Fair Trading also receives a high volume of complaints every year from consumers about their dealings with the real estate and property industry. Fair Trading data shows there were 4,077 complaints about real estate and property matters in 2016‑17, accounting for 9 per cent of all complaints during the period.
There is a clear need for Government action. The Property, Stock and Business Agents Amendment (Property Industry Reform) Bill 2017 is the first step in the Government's overall reform package. It is essential that the legislation regulating the industry balances the need for appropriate levels of consumer protection with the need to ensure the efficient and effective operation of the industry. The Property, Stock and Business Agents Act 2002 is the primary piece of legislation regulating the real estate and property services industry. The Act establishes a mandatory licensing system for the following service providers: real estate agents, buyer's agents, stock and station agents, business agents, strata and community managing agents, and on-site residential property managers.
Although the amendment bill provides the overall foundation for the reform package, other key elements will be introduced by amendments to the Property, Stock and Business Agents Regulation, which includes the Rules of Conduct; the Property, Stock and Business Agents Qualifications Order; the guidelines for continuing professional development; and the supervision guidelines for licensees in charge. These aspects of the reform package will be the subject of further close consultation and discussion with stakeholders in coming months. The development of the reform package was guided and informed by an independent review of the property services industry training framework, an assessment of the current licensing system using the IPART Licensing Framework and Guide, identification of key industry issues by Fair Trading's Real Estate and Property Division, and extensive discussions with NSW Fair Trading's Real Estate Reference Group.
The independent training review was undertaken in response to industry concerns that property services training was insufficient, meaning that real estate agents and property services agents were working in the field without adequate training or the qualifications necessary to assist members of the public. The panel's final report, publicly released in June 2016, noted that the major function of educational standards should be to protect the public. In fact, improving consumer protection is a key principle of this reform package. The reform package was set out in the Government's Real Estate and Property Services Industry Reform Paper that was released in November last year.
Industry and community feedback on the reform paper showed strong general support for the reforms, in particular the enhanced training and educational measures. The matters dealt with in this bill are as follows. The new licensing framework will have three levels of licences: licensees in charge, licensed agents, and certificate of registration holders. The highest level will be a class 1 licence. This licence will be required for anyone working as a licensee in charge of a business. In order to apply for the new "licensee in charge" class licence, a licensee will need to have two years' work experience and will have to complete a diploma from the national property services training package. Alternatively, they must hold a certificate IV and an equal qualification in business management.
While all property businesses are currently required to have a licence holder acting as licensee in charge to supervise the operation of the business, there is currently no specific licence type or qualification for this role. In addition, an examination of complaints received by Fair Trading and claims on the Property Services Compensation Fund indicates that a lack of proper supervision of staff is putting consumers at risk. Given the level of responsibilities of licensees in charge, these training and experience requirements are considered appropriate, will enhance industry professionalism, and help minimise consumer detriment. These higher education requirements reflect the significant responsibilities of licensees in charge.
The framework will also provide more flexibility, as one licensee in charge will be allowed to supervise more than one office of the same business, but they will still have to ensure that business operations are being properly and effectively supervised. The next level will be a class 2 licence, equivalent to the current full agent's licence. Class 2 licence holders will be known as "licensed agents". Licence applicants are already required to complete a certificate IV level qualification, and this requirement will remain. However, the reforms mean that class 2 licence holders will also need to have 12 months' industry experience to apply for a full licence. The bill will also streamline the licensing framework, and reduce the number of licences required.
For example, the buyer's agent licence, the business agent's licence and the on-site residential property manager's licence will all be integrated into one licence, the real estate agent's licence. Holders of the licences to be merged will be grandfathered onto the real estate agent's licence with appropriate restrictions so that their business operations will not be affected. The required competency units for the certificate IV in property services that must be completed to obtain a real estate agent's licence under the new framework will be revised to ensure they reflect the wider functions that these licence holders may undertake. Current holders of the licence types to be integrated will be grandfathered onto a real estate agent's licence. This will avoid any interruption to routine business operations from the licencing reforms. The range of activities for grandfathered licence holders will be restricted unless they complete the additional competency units required to qualify for a full real estate agent's licence as will be required in the revised qualifications order.
New industry entrants, or certificate of registration holders, the third class of licence, will need to complete three additional competency units from the certificate IV qualification, increasing the total to seven competency units needed to become a certificate holder. However, new licence applicants will also need to have 12 months' industry experience, and will need to demonstrate that they have attained certain competencies. The additional training units will improve the knowledge of people who are just starting out in the industry. The reforms to continuing professional development will also create a clear path for certificate holders to progress to a full licence within three to four years.
The qualifications and specific competency units to be required for the new licensing framework will be the subject of close industry consultation in coming months. To further reduce regulatory burden, a specific exemption from the requirement to hold any qualifications will be introduced for people working in property services agencies who do not undertake any real estate functions. For example, this would include those employees who complete reception, administration and or graphic design work duties. There is currently some uncertainty in the industry regarding what qualification some employees should have, and this aims to resolve that issue. If a business operator prefers to employ people who hold qualifications, they will not be prevented from doing so. This will ensure that operators can decide how best to run their businesses and how to meet their clients' needs.
The definition of strata managing agent has been clarified to capture licensees who manage strata schemes or community schemes. This ensures that there will be no impact on the regulated functions of strata or community managing. The regulated functions of stock and station agents remain appropriate and are also being retained. To improve educational standards across the entire property services industry, the Continuing Professional Development [CPD] guidelines for the property services industry will be overhauled to introduce new requirements for each qualification level. Class 1 and class 2 licence holders will have to complete six hours of CPD annually. This will involve three hours of compulsory topics and three hours of elective topics. This is an increase from the current requirement of four hours of CPD.
The compulsory topics will cover matters such as legislative changes and key compliance matters. They will be chosen by an industry-government advisory group and will be reviewed regularly to ensure CPD remains appropriate. Licensees in charge will have to do the same six hours as class 2 licence holders, but will also have to do another three hours of CPD focusing on business skills. To establish a professional training pathway, annual CPD for certificate holders will be competency units from a certificate IV qualification. In combination with the seven competency units required to enter the industry, this will ensure that certificate holders will complete enough competency units within three to four years to obtain a certificate IV qualification. This will mean they will increase their knowledge while gaining on-the-job skills and experience, and will obtain all the qualifications to be eligible to apply for a licence.
The new CPD framework will help establish a clear career pathway for certificate holders to advance to a full licence. It will also make CPD more relevant for licence holders and licensees in charge. To ensure that different activities in the real estate and property industry are undertaken by people with appropriate qualifications, the bill prescribes which roles and responsibilities are suitable for each of the three classes of real estate licence. This will mean the significant areas of responsibility, such as approving withdrawals from trust accounts, will only be undertaken by licensees in charge, and certificate holders will have more limited responsibilities. This will be introduced by regulation, and there will be close industry consultation to determine the appropriate roles and responsibilities for each level of qualification.
The bill will introduce greater flexibility for business operations. Under current requirements, every place of business must have a licensee in charge. Exemptions can only be granted by application to the Secretary of the Department of Finance Services and Innovation. This requirement does not allow for the ability of modern technology to enable a licensee in charge to conduct transactions while not being physically present and the increasing use of the internet in real estate transactions. The bill will allow for a real estate or property business to have one licensee in charge of the entire business instead of each place of business. This means that one licensee in charge will be able to supervise more than one office.
Licensees in charge will still be required to ensure the proper supervision of the business. The current supervision guidelines will be reviewed to reflect the new business arrangements. To protect against potential conflicts of interests, a licensee in charge will still not be able to work for more than two licence holders unless those licence holders are in a partnership. In addition to these provisions, the supervision guidelines will be reviewed in an appropriate manner regarding proper oversight of employees. The bill also will introduce a restriction on the gifts and benefits that may be accepted by people working in the real estate and property services industries. A dollar value limit will be prescribed by the regulation, in consultation with industry. This restriction will help limit gifts and benefits being given that would act as inducements for an agent not to act in their clients' best interests. These provisions have been carefully drafted to ensure that items such as gifts provided by employers to employees as a form of bonus will not be captured.
In addition, gifts provided to agents from clients as a thank you for providing quality services are still allowed. It is a reasonable expectation that agents should not be accepting gifts or benefits that are potential inducements. Such gifts or benefits could create a conflict of interest to encourage agents not to act in their client's best interests. The bill will require all trust account audits to be lodged with NSW Fair Trading. All licensees are already required to have their trust accounts audited, so having to submit all trust account audits should not be a significant extra burden. Agents' failure to account for money held in trust is a major risk area for the industry, and a major source of consumer detriment. During the last financial year, the Property Services Compensation Fund paid out more than $500,000 to consumers. As well, there were other significant consumer repayments from businesses where Fair Trading has appointed a manager.
Furthermore, if an audit is not lodged it is not clear whether the audit was unqualified and did not have to be lodged, or was in fact qualified but the agent had failed to lodge a copy. To minimise any additional administrative burden, an online audit lodgement portal is being developed. This system will be in operation before this requirement comes into effect. Additional trust account requirements will be introduced by regulation. This will include a requirement to hold separate trust accounts for sales and rental payments, and a requirement to clear rental trust accounts at the end of each month. This will help keep landlords aware if there is any shortfall in their rental income that cannot be accounted for. The bill also will allow for an extension of the time for which a licence can be suspended while a licensee's conduct is investigated. Where the secretary considers that the grounds for disciplinary action are serious, the bill allows a suspension to be imposed for as long as the secretary reasonably requires to investigate the matter, rather than the usual limit of 60 days.
Extended licence suspension will also be possible for failure to lodge an audit report, so the suspension may continue until the audit report is lodged. I commend Victor Dominello, former Minister for Innovation and Better Regulation, for the development of the reform package. I also thank the Real Estate Institute of New South Wales, the Estate Agents Co-operative, the Australian Livestock and Property Agents Association, and Strata Community Australia. These key industry stakeholders have been integral to the development of the package through their participation in Fair Trading's real estate reference group. The primary aim of the package is to improve industry professionalism and skills and to deliver better consumer outcomes. The measures in the bill strike an appropriate and reasonable balance between effective consumer protection and industry regulation.
These proposals fit with the Government's commitment to better regulation and appropriate licensing through the Independent Pricing and Regulatory Tribunal [IPART] framework. The reforms in this bill also support the Government's "Consumer First" initiatives that aim to support members of the community in their dealings with traders. The Government will continue to work with the industry in the next stages of the implementation of the reform package. I am confident that the reform package will help to build higher educational and professional standards across the State, and to deliver improved outcomes for consumers. I commend this bill to the House.
Debate adjourned.
